Multiplex Company

1
Multiplex Company

• Third year of using a complex and comprehensive
  financial planning process
• The CEO is very pleased with the output of the
  planning process
• Pro forma cash flow statements are logical,
  organized, and pertinent to the firms business
  strategy
• However, implementation of the plan leaves
  something to be desired
• CEO convinced that the departmental managers do a
  poor job of estimating the cost of resources and
  time required to complete the projects

2
Multiplex Company

• Eleven new strategic projects were identified
• Six major types of projects
• new products,
• modifications of existing products,
• research and development,
• new application studies,
• manufacturing process improvements, and
• reorganization of the sales department
• Each project sponsored by a department managers,
  who is required to prepare
• a simple financial analysis and
• a Gantt chart showing the aggregate time required
  to finish a project
• This sponsor usually, but not always, winds up
  being assigned as the PM

3
Multiplex Company

• Tomorrow is the final day of the current years
  strategic planning session
• CEO plans to make a strong pitch to her managers
  to prioritize the projects to ensure that those
  most important to the company get done
• In the past, it seemed as though all the projects
  lagged behind when resource problems arose
• CEO wants a consensus from the managers about
  which projects will go on the back burner and
  which will proceed on schedule when problems are
  encountered

4
Questions

• CEO is not sure how to go about ranking the
  projects.
• Will the managers be able to achieve consensus?
• Should they use the financial analysis done by
  the project sponsor?
• Perhaps the planning group could use their
  collective experience to rank the projects
  subjectively
• What method would you recommend to the CEO?
  Support your recommendation.

5
L M Power

• In the next two years, a large municipal gas
  company must begin constructing new gas storage
  facilities to accommodate the Federal Energy
  Regulatory Commissions Order 636 deregulating
  the gas industry
• The VP in charge of new projects believes there
  are two options
• One option is an underground deep storage
  facility (UDSF) and the other is
• A liquid natural gas facility (LNGF)
• The VP has developed a selection project model
  and will use it in presenting the project to the
  president

6
VP Data
7
Questions

• VPs background is in Finance, so the model will
  be a financial one, i.e.,
• Net present value analysis (NPV)
• Would you use the model?
• Why or why not? Base your answer on the five
  criteria developed by Souder and evaluate the
  model in terms of this criteria